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US exits Citigroup stake, earns US$12b profit
Source: Agencies |
December 7, 2010, Tuesday
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THE US government sold off its remaining shares in Citigroup Inc yesterday for US$4.35 each, marking an exit from ownership in the bailed-out banking giant with a US$12 billion gross profit for taxpayers.
The US Treasury said it will take in US$10.5 billion in sale proceeds from a public offering of 2.4 billion Citigroup shares, announced just hours earlier. The price is 10 cents below the US$4.45 closing price on the New York Stock Exchange.
"By selling all the remaining Citigroup shares today, we had an opportunity to lock in substantial profits for the taxpayer and avoid future risk," said Tim Massad, Treasury acting assistant secretary for financial stability.
"With this transaction, we have advanced our goals of recovering TARP funds, protecting the taxpayer, and getting the government out of the business of owning stakes in private companies," Massad added in a statement.
The Treasury invested a total of US$45 billion to bail out Citigroup in 2008 and 2009 during the financial crisis. The company paid back US$20 billion in preferred stock, while another US$25 billion was converted to 7.7 billion common shares held by the Treasury.
It had whittled that stake down over the past year from 27 percent to less than 7 percent through controlled sales in the market.
The move to sell the remaining shares in one large offering follows last month's successful initial public offering in General Motors Corp, which significantly reduced the government's stake. The GM IPO attracted strong interest from domestic institutional investors and foreign sovereign wealth funds alike.
"Citi is pleased that the US Department of the Treasury has finalized plans to exit from its remaining holdings of Citigroup common stock. We are very appreciative of the support provided by the Treasury during the financial crisis," Citigroup spokesman Jon Diat said in a statement.
The offering, run by Morgan Stanley as bookrunning manager, is expected to close on or about December 10, 2010. Underwriting fees for the transaction will be paid by Citigroup, Treasury said.
The Treasury said its estimate of a cumulative US$12 billion profit from the US$45 billion bailout includes gains from the sale of common stock of around US$6.85 billion, interest and dividends of US$2.9 billion and US$2.2 billion in Trust Preferred Securities it received for guarantees on a pool of Citigroup assets.
Treasury averaged a price of US$4.14 for each of the 7.7 billion Citgroup shares it sold. It received the shares at a conversion rate of US$3.25 each.
The sale, however, does not completely free Citigroup from the government's clutches. The Treasury also said it would continue to hold warrants to purchase Citigroup shares issued as part of the bailout. These may be repurchased by Citigroup or sold in a separate auction for an additional profit.
The Treasury also said it is entitled to receive some US$800 million in Citigroup Trust Preferred Securities from the Federal Deposit Insurance Corp under a debt guarantee program -- provided that the FDIC incurs no losses on Citigroup debt it backstopped during the financial crisis.
The Treasury next year is expected to begin selling off its stake in bailed-out insurer American International Group, and it anticipates a profit on the complex series of transactions.
The US Treasury said it will take in US$10.5 billion in sale proceeds from a public offering of 2.4 billion Citigroup shares, announced just hours earlier. The price is 10 cents below the US$4.45 closing price on the New York Stock Exchange.
"By selling all the remaining Citigroup shares today, we had an opportunity to lock in substantial profits for the taxpayer and avoid future risk," said Tim Massad, Treasury acting assistant secretary for financial stability.
"With this transaction, we have advanced our goals of recovering TARP funds, protecting the taxpayer, and getting the government out of the business of owning stakes in private companies," Massad added in a statement.
The Treasury invested a total of US$45 billion to bail out Citigroup in 2008 and 2009 during the financial crisis. The company paid back US$20 billion in preferred stock, while another US$25 billion was converted to 7.7 billion common shares held by the Treasury.
It had whittled that stake down over the past year from 27 percent to less than 7 percent through controlled sales in the market.
The move to sell the remaining shares in one large offering follows last month's successful initial public offering in General Motors Corp, which significantly reduced the government's stake. The GM IPO attracted strong interest from domestic institutional investors and foreign sovereign wealth funds alike.
"Citi is pleased that the US Department of the Treasury has finalized plans to exit from its remaining holdings of Citigroup common stock. We are very appreciative of the support provided by the Treasury during the financial crisis," Citigroup spokesman Jon Diat said in a statement.
The offering, run by Morgan Stanley as bookrunning manager, is expected to close on or about December 10, 2010. Underwriting fees for the transaction will be paid by Citigroup, Treasury said.
The Treasury said its estimate of a cumulative US$12 billion profit from the US$45 billion bailout includes gains from the sale of common stock of around US$6.85 billion, interest and dividends of US$2.9 billion and US$2.2 billion in Trust Preferred Securities it received for guarantees on a pool of Citigroup assets.
Treasury averaged a price of US$4.14 for each of the 7.7 billion Citgroup shares it sold. It received the shares at a conversion rate of US$3.25 each.
The sale, however, does not completely free Citigroup from the government's clutches. The Treasury also said it would continue to hold warrants to purchase Citigroup shares issued as part of the bailout. These may be repurchased by Citigroup or sold in a separate auction for an additional profit.
The Treasury also said it is entitled to receive some US$800 million in Citigroup Trust Preferred Securities from the Federal Deposit Insurance Corp under a debt guarantee program -- provided that the FDIC incurs no losses on Citigroup debt it backstopped during the financial crisis.
The Treasury next year is expected to begin selling off its stake in bailed-out insurer American International Group, and it anticipates a profit on the complex series of transactions.
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